The Treasury and the Financial Services Authority are thought to be at odds over the future of tax efficient Enterprise Investment Scheme investments, as the regulator continues to deliberate over whether or not to include the products in a ban on unregulated collective investment schemes.
Under proposals published in August 2012, sales of Ucis to retail investors will be banned. However, as the definition of Ucis is vague, it was initially thought it could extend to a wider range of esoteric collective investment schemes, including venture capital trusts, real estate investment trusts and EISs.
Earlier this month the FSA confirmed that it would not include VCTs or Reits in the proposals, but that it was still considering its position on EISs.
According to Tony Müdd, divisional director for the development and technical consultancy at St James’s Place, the Treasury is involved in the deliberations and is thought to be keen to ensure that EISs are not included under the Ucis umbrella as this may reduce funding for small and medium-sized businesses.
EISs are trusts that invest in small and medium-sized businesses within a set criteria and that provide tax relief to investors to encourage investment in these otherwise higher-risk companies.
Investors are entitled to 30 per cent income tax relief if shares are held for three years and after two years the investments are exempted from inheritence tax. The maximum investment amount is £1m a year.
In an interview with FTAdviser, Mr Müdd said: “Our understanding is that the Treasury is quite keen that it doesn’t fall under Ucis in any case because these are vehicles that should help stimulate the economy at a time when actually that is exactly what the economy needs.”
When asked if the FSA is at odds with the Treasury about EISs, Mr Müdd said: “I suspect that they probably are but I understand where the FSA is coming from as they do make it quite clear that they want to find the right balance between consumer protection and choice.
“That is all about making sure the clients totally understand what it is they are getting themselves into.”
Mr Müdd said SJP will continue to promote VCTs and EISs “irrespective of what happens”, saying that if “the client is right and have a high level of income or investable wealth” EISs and VCTs are “ideal vehicles as part of a portfolio.”
He continued: “Maybe the FSA is just saying that they are not convinced that the matching the client to the risk and making sure the client understands is being done is as well as it is but to a certain extent if that is the case, I think this is a sledgehammer to crack a nut.”
Mr Müdd said SJP only recommends EISs to high net worth sophisticated clients who have an income of at least £100,000 or have investable wealth of £250,000 or more.
